Can a Change in the Money Supply Change Aggregate Demand?
Most economists would say that a change in the money supply will shift the AD curve. One way to explain the effect is to say a change in the money supply affects interest rates, causing changes in consumption and investment, which affects aggregate demand. III. SHORT-RUN AGGREGATE SUPPLY Aggregate supply refers to the quantity supplied of Real GDP at various price levels, ceteris paribus. Aggregate supply includes both short-run and long-run aggregate supply. A. Short-run Aggregate Supply Curve: What it is and Why it is Upward-Sloping Economists have put forth several explanations as to why the SRAS curve is upward-sloping. Sticky Wages Firms pay nominal wages, but they often base their decision on how many workers to hire on real wages (nominal wages divided by the price level). When the price index falls, real wages rise and firms cut back on labor. With fewer workers working, less output is produced. Sticky Prices Some prices are sticky because there are costs to changing prices, ca
